Introduction to Web3 Payments – ThePaypers

To better understand how crypto works, BNB Chain research the team maps the web3 payment ecosystem

Leaving aside both the philosophical questions and the independence of the monetary policy of central banks or any kind of intermediary, Bitcoin was born as a network of payments between individuals. Payments have been a cornerstone of cryptocurrencies since their inception – including pre-Bitcoin experiments like DigiCash and BitGold – but their use, while increasingly widespread, is still not massive. Apart from the obvious reluctance of some individuals towards cryptocurrencies, there are certain technical barriers that prevent their use as a leading means of payment.

Today, the current crypto landscape is quite different from the end of the first decade of 2000 and has evolved by leaps and bounds, but some of the limitations inherent in a permissionless P2P network are still in place, limiting the ability to pay with cryptocurrency on daily basis.

Before going into the limitations or trying to fix something, it is necessary to review some concepts that make it easier to map the web3 payment ecosystem (powered by blockchain technology).

Payment can be simply defined as the exchange of an asset between two people generated by an agreed transaction. What is the reference value in a web3 payment? Where and how are these assets stored? A web3 payment transaction is likely to include a cryptocurrency, which is a digital unit of account issued on a permissionless and decentralized blockchain, such as the BNB Chain.

Cryptocurrencies have high volatility, which makes them an asset that may not be best suited for payments, especially on a large scale. To avoid this volatility, stablecoins were created. Stables are cryptocurrencies whose value is derived from a fiat currency in such a way that a 1:1 parity is maintained with the underlying asset (which is deposited in the form of cash or cash equivalents into the issuer’s stablecoin account). In simple words, 1 BUSD is equivalent to 1 USD, which makes its use as a unit of account much more ideal. Cryptocurrencies are stored in a digital wallet, which is the starting and ending point for any payment transaction.

In recent years, several centralized entities have realized the advantages that blockchain technology provides in terms of speed, traceability, settlement, and especially the endless possibilities that programmable money provides. Therefore, several financial institutions have already launched their permitted blockchains with their own monetary policy.

Governments and especially their economic arm, the central banks, are also exploring the implementation of a digital currency issued by a central bank using blockchain technology which

are not considered cryptocurrencies, but CBDCs (Central Bank Digital Currency). It should be noted that some CBDC experiments do not even use DLT.

Both CBDCs and cryptocurrencies issued by centralized entities do not share the differentiating characteristics of the general concept of cryptocurrency: its permissionless, decentralized issuance, or its lack of trust. However, there are potential bottlenecks in the performance of a blockchain.

Blockchain Trilemma for Payments:

Blockchains are often forced to make trade-offs that prevent them from achieving all three aspects:

1. Decentralized: creating a trustless blockchain system that has no central point of failure;

2. Scalable: a system’s ability to handle transactions/second;

3. Secure: the system’s ability to defend itself against attacks, bugs, and other malicious attacks.

The latency and finality of transactions is incredibly important for payment systems along with a user experience that is elegant and convenient. However, current systems allow limited throughput of a maximum of 5k tps (best case), while Visa can handle 24k tps.

This has led to the creation of Layer 2s and other scaling techniques that decouple computation and scalability functions where transactions are batched and have a final settlement at Layer 1.

The Lightning Network on Bitcoin is specifically designed to meet the requirements as a payment infrastructure where users can use it to pay for their daily activities such as buying a coffee or paying in grocery stores. However, the mainstream adoption of crypto for payments has been a pressing challenge.

BNB Chain is EVM compatible, and allows a block gas cap of 120M, i.e. how much gas you can burn in a block for EVM chains, Ethereum and Polygon is 30M. BNB Chain is the most optimized EVM chain that acts as a basis for payments. Gas costs are relatively higher compared to other chains, but to provide a better user experience, BNB Chain deploys zk-rollup, zkBNB and sidechain infra for application-specific blockchains. This will significantly reduce the cost of gas and increase the overall performance.

One of the most repeated criticisms of cryptocurrencies is the impossibility of using them as a means of payment outside of the closed world that is the blockchain. BNB has several players who refute that statement.

Okse allows wallet users to pay with cryptocurrencies in hundreds of countries and businesses with their digital debit cards issued by Visa. Everything is done permissionless and through a smart contract; the user just needs to send the money from the wallet to the debit card contract, approve it and just do groceries and pay. Projects like PIP also focus on native web3 users. It also allows payments on social platforms to, for example, reward your favorite content creator or payments to web3 identities, by being able to send a payment directly to a friend using only their BNB username. Streaming projects, such as Zebec, streamline the payment of services or the salary of crypto-native companies, enabling the existence of companies fully powered by digital assets.

Payments is still an emerging category in crypto and it is still not clearly defined what it will look like in a few years or what kind of projects will facilitate mass adoption. BNB Chain believes that payments will play a crucial role in crypto adoption and therefore supports all relevant projects that build in this direction.

This editorial was originally published in the report Cryptopayments and Web 3.0 for banks, merchants and PSPs. The first edition of our report aims to provide a good payment resource with crypto terms and concepts for those interested in understanding the basics of crypto payments and their long-term impact. Furthermore, it shares practical examples of cryptocurrency-enabled e-commerce and banking services and presents the latest developments in the regulatory landscape. It also reveals what are the most innovative companies in this space, building the crypto skins.

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